FINANCIAL MANAGEMENT

KING IV CORPORATE GOVERNANCE & MANAGEMENT

CORPORATE GOVERNANCE AND MANAGEMENT

The key dimensions of corporate governance are strategy oversight, policy making, accountability and monitoring – Pearl Zhu

• Great and good school have one distinctive feature in common : QUALITY LEADERSHIP.

• Schools have principals who are effective, provide meaningful leadership (all levels) and display absolute integrity.

• Schools are served by SGBs that understand, demonstrate and implement good governance.

• Corporate entities are primary driven by a profit motive, but in all other respects the governance of schools is comparable to the principles for corporate governance

• Public schools are governed by defined stakeholders (each with an single vote).

• Task of SBG is to act in the BEST INTERESTS of the school.

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ETHICAL CULTURE AND MINDSET

• We need to recognise that no law or code can realistically hope toprevent criminal activity. If somebody wants to do somethingwrong, he or she will do it either by disregarding the law orfinding a loophole within it.

Difference between a law and a voluntary code.• A law provides the framework that people must not transgress

and provides the sanctions they will face if they do. By contrast, avoluntary code, like King, seeks to set out the principles and bestpractices that organisations with a sincere desire to achieve goodgovernance should follow.

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KING CODE

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NOT CONE

KING IV

• King IV is principle- and outcomes-based rather than rules-based.Corporate governance should be concerned with ethicalleadership, attitude, mindset and behaviour. The focus is ontransparency and targeted, well-considered disclosures.

• School Governance vs School Management. School governancehas to do with the creation of policies and rules for the schooland its members (staff, learners and parents). In other words, it isabout making decisions about how the school will be run. SGBsare responsible for school governance.

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ETHICAL BEHAVIOUR

• Because it is not trying to be a law, and because it recognises thatethical behaviour is ultimately a matter of choice, King is avoluntary code. King IV’s “apply and explain” approach reflectsthis ethos, and prompts the governing body to apply its mind toachieving the principles, rather than simply following a set ofrules blindly.

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CHARATERISTICS OF CORPORATE GOVERNANCE

• Discipline.. ... • Transparency. ... • Independence. ... • Accountability. ... • Responsibility. ... • Fairness. ... • Social responsibility. …

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DISCIPLINE

• Corporate discipline is a commitment by a company’s seniormanagement to adhere to behaviour that is universallyrecognized and accepted to be correct and proper. Thisencompasses a company’s awareness of, and commitment to, theunderlying principles of good governance, particularly at seniormanagement level.

“All involved parties will have a commitment to adhere to procedures, processes,and authority structures established by the organization.”

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TRANSPARENCY

• Transparency is the ease with which an outsider is able to makemeaningful analysis of a company’s actions, its economicfundamentals and the non-financial aspects pertinent to thatbusiness.

• This is a measure of how good management is at makingnecessary information available in a candid, accurate and timelymanner – not only the audit data but also general reports andpress releases. It reflects whether or not investors obtain a truepicture of what is happening inside the company.

“All actions implemented and their decision support will be available for inspection by authorized organization and provider parties.”

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INDEPENDENCE

• Independence is the extent to which mechanisms have been putin place to minimize or avoid potential conflicts of interest thatmay exist (such as dominance by a strong chief executive or largeshare owner).

• These mechanisms range from the composition of the board, toappointments to committees of the board, and external partiessuch as the auditors. The decisions made, and internal processesestablished, should be objective and not allow for undueinfluences.

“All processes, decision-making, and mechanisms used will be established so as to minimize or avoid potential conflicts of interest.”

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ACCOUNTABILITY

• Individuals or groups in a company, who make decisions and takeactions on specific issues, need to be accountable for theirdecisions and actions. Mechanisms must exist and be effective toallow for accountability. These provide investors with the meansto query and assess the actions of the board and its committees.

“Identifiable groups within the organization - e.g., governance boards who takeactions or make decisions - are authorized and accountable for their actions.”

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RESPONSIBILITY

• With regard to management, responsibility pertains tobehaviour that allows for corrective action and for penalizingmismanagement.

• Responsible management would, when necessary, put in placewhat it would take to set the company on the right path.

• While the board is accountable to the company, it must actresponsively to and with responsibility towards all stakeholders ofthe company.

“Each contracted party is required to act responsibly to the organization and its stakeholders.”

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FAIRNESS

• The systems that exist within the company must be balanced intaking into account all those that have an interest in the companyand its future. The rights of various groups have to beacknowledged and respected. For example, minority shareowner interests must receive equal consideration to those of thedominant share owner(s).

“All decisions taken, processes used, and their implementation will not be allowed to create unfair advantage to any one particular party.”

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SOCIAL RESPONSIBILITY

• A well-managed company will be aware of, and respond to, socialissues, placing a high priority on ethical standards.

• A good corporate citizen is increasingly seen as one that is non-discriminatory, non-exploitative, and responsible with regard toenvironmental and human rights issues.

• A company is likely to experience indirect economic benefits suchas improved productivity and corporate reputation by takingthose factors into consideration.

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CORNERSTONES OF KING IV

• Transparency and accountability are cornerstones of King IV.They are explicit in the first Principle, and are two of the sixcharacteristics of ethical and effective leadership.

• However, King IV is designed to be flexible enough for thegoverning body to exercise its own judgment in ensuring that allthe governance arrangements are appropriate to theorganisation’s size, nature, maturity and specific needs.

• King IV makes it very clear that transparency and accountabilityare two sides of the same coin; the need to disclose not onlywhat was done but the thinking behind it promotes bothaccountability and the flexibility any organisation needs to adaptthe code to its particular circumstances.

• Disclosure of this nature gives stakeholders the opportunity cometo their own conclusions.

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INTEGRATED GOVERNANCE

• Governance based on integrated thinking and the formulation ofintegrated strategic plans, which jointly result in integratedreporting

• Three focus areas that create this integration;• School’s nurturing of its financial resources• Its value added for society• It collective respect for environmental considerations

• Schools should accept the value of the triple focus on finance,society and environment

• Reports must also reflect on the sustainability of the school in allthree of these focus areas

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ALTERNATIVE OPTION

Alternative approach that schools may find easier to use for integrating thinking,strategic planning and integrated reporting = 6 CAPITALS available to any organisation

• FINANCIAL CAPITAL (savings and income less financial liabilities;Focus on the source of funds rather than the way in which theyare used)

• MANUFACTURED CAPITAL (human created, production-orientated equipment include items produced within the schoolcommunity and sold for fund-raising)

• INTELLECTUAL CAPITAL (innovations, human recourses andexternal relationships which can determine the organisation'scompetitive advantage) INTELLECTUAL CAPITAL – the carrier isthe nature and character of school itself – teaching aidspublications)

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ALTERNATIVE OPTION

Alternative approach that schools may find easier to use for integrating thinking,strategic planning and integrated reporting = 6 CAPITALS available to any organisation

• HUMAN RESOURSE CAPITAL (the intangible competitive asset isvested in each individual person – knowledge, skills andexperience of individuals)

• SOCIAL AND RELATIONSHIP CAPITAL (derived from internal orexternal organisational networks. Relationships between theschool and its community, government, neighbouring schools)

• NATURAL (PHYSICAL) CAPITAL (land, water, the footprint that theschool creates)

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PRINCIPLES UNDERLYING THE TWO OPTIONS

• 3 Principles for the entity’s ethical culture (15 recommended practises)

• 2 Principles for performance, value creation, sustainability and transparency (15 recommended practises)

• 10 Principles for adequate and effective control (61 recommended practises

• 2 Principles for trust, good reputation and legitimacy (25 recommended practises)

• Good corporate principle (not applicable to schools)

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PRINCIPLES FOR ETHICAL CULTURE

• The GB should set the tone and lead ethically and effectively• The GB should govern the ethics of the organisation in such a way

that it supports the establishment of an ethical culture• The GB should ensure that the organisation is and is seen to be a

responsible corporate citizen

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PRINCIPLES FOR PERFORMANCE, VALUE CREATION SUSTAINABILITY AND TRANSPARENCY

• The GB should appreciate the organisation’s core purpose, itsrisks and opportunities, strategy, business model and sustainabledevelopment

• The GB should ensure that reports issued enable stakeholders tomake informed assessments of the organisation’s performanceand its short, medium and long-term prospects

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PRINCIPLES FOR ADEQUATE AND EFFECTIVE CONTROL

• GB should serve as the focal point and custodian of corporategovernance in the organisation

• GB should comprise the appropriate balance of knowledge, skills,experience, diversity and independence for it to discharge itsgovernance role and responsibilities objectively and effectively

• GB should ensure that its arrangements for delegation within its ownstructures promote independent judgement and assist with balance ofpower and the effective discharge of duties

• GH should ensure that the evaluation of its own performance and thatof the committees, its chair and its individual members, supportcontinued improvement in its performance and effectiveness

• GB should ensure the appointment of and delegation to managementcontribute to role clarity and the effective exercise of authority andresponsibilities

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PRINCIPALS FOR ADEQUATE AND EFFECTIVE CONTROL

• GB should govern risk in a way that supports the organisation in settingand achieving its strategic objectives

• GB should govern technology and information in a way that supportsthe organisation in setting and achieving its strategic objectives

• GB should govern compliance with applicable laws and adopted non-binding rules, codes and standards in a way that supports theorganisation being ethical and a good corporate citizen

• GB should govern should ensure that the organisation remuneratesfairly, responsibly and transparently so as to promote the achievementof strategic objectives and positive outcomes in the short, medium andlong-term

• GB should govern should ensure that assurance services and functionsenable an effective control environment, and these support theintegrity of information for internal decision-making and of theorganisation’s external reports

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SUMMARY

• Building of reputation and trust while ensuring legitimacy• Commitment to ethical openness• Comprehensive transparency• Fiduciary responsibility • Financial governance means predictability and control in implementing

budgets• All activities in a school contain some element of risk – risk

management is a core responsibility of the SGB (identifying, assessing, responding to, monitoring and reporting risks)

• Governance is not only about policies and procedures, strategies and action plans, checks and balances, or best practices of ethical leadership and decisions made in the interest of the school. Importantly its also about communication. Communication strategies and practices are significant

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CONCLUSION

• When a school begins to acquire the reputation of being a greatschool it is not based on a sudden shift, but rather incrementalhabits of better governance

• The aim is sustainable, transparent, ethical advancement• Governance is about measured success that is sustainableIt is crucial to understand that King IV and other voluntary codesare intended as guides to help organisations achieve goodgovernance principles through the adoption of governancepractices in a way that does not unduly constrain them, and that isappropriate to their particular circumstances.

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• https://www.iodsa.co.za/news/389613/Understanding-King-IV-and-what-it-is-intended-to-achieve.htm

• https://www.iodsa.co.za/news/389613/Understanding-King-IV-and-what-it-is-intended-to-achieve.htm

• http://www.talenttalks.net/4-kings-king-iv-new-era-corporate-governance/• https://www.swview.org/blog/seven-characteristics-corporate-governance• Deacon (Ed). 2017. Financial management in Public Schools. A practical guide

to legislative compliance

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Thank youDankie

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